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Economic Outlook For Latin America, Caribbean Once Again Revised

09.10.2015 11:21

The economic outlook for Latin America and the Caribbean has once again been revised downward, according to the Western Hemisphere Regional Economic Outlook released on Wednesday by the International Monetary Fund.

The economic outlook for Latin America and the Caribbean has once again been revised downward, according to the Western Hemisphere Regional Economic Outlook released on Wednesday by the International Monetary Fund.

The new projection implies that the average growth of real GDP in the region may be slightly negative this year -0.3% before recovering modestly
in 2016 to 0.8 percent.

At a news conference in Lima, Peru, Alejandro Werner, Director of the IMF's Western Hemisphere Department said that the Fund and the World Bank expect a slight recovery and growth in the next year. He added that many of the region's economies are showing signs of an acceleration. "We see it here in Peru," said Werner.

Stronger U.S. growth should benefit countries in the region, especially those with tighter links through trade, remittances, and tourism (Mexico, Central America, and the Caribbean).

Two of the main economies in the region, Brazil and Venezuela, are enduring sharp economic contraction this year.

This is not only a result of the deterioration in the international environment; it also stems from deepening domestic imbalances, albeit of different types in each country.

Venezuela is trapped in a vicious cycle of distortionary interventions, weak policy frameworks, and economic and social deterioration. As a result, the country has the highest inflation rate in the world, a severe shortage of goods, and an exchange rate on the informal market that is about 100 times higher than the official rate. In this context, and given the collapse in oil prices, output is expected to contract by 10 percent in 2015.

After an excessive use of demand stimulus policies in the past, the authorities in
Brazil have had to adopt more stringent monetary and fiscal policies to restore confidence in the sustainability of the country's public finances and to stabilize medium-term inflation expectations. Moreover, a political crisis has demolished the confidence of consumers and firms to historic lows, further affecting economic activity and public finances. The level of economic activity is expected to fall by about 3 percent in 2015.

"Now, the revival of confidence itself depends on the pursuit of a credible fiscal adjustment program and the frequent revision we've seen to fiscal targets does not inspire that confidence. So, to get back on track what you need is political will and cohesion in pursuit of such an adjustment program. And, when that happens, uncertainty dissipates, confidence comes back and hopefully the economy will rebound," said Krishna Srinivasan, Deputy Director of the IMF's Western Hemisphere Department, in describing steps Brazil will need to take to improve its economy.

Weaker commodity prices for the foreseeable future, however, will continue to hurt South America's net commodity exporters—lowering national incomes, reducing investment, and worsening fiscal balances. These developments could, in turn, impede progress made in recent years in poverty reduction. Key risks, including an abrupt tightening of U.S. interest rates or a further slowdown in China, may disproportionately affect Latin America.

Although the growth projection for 2015 remains slightly positive for Argentina, partly because of a major fiscal incentive, the economy is expected to contract in 2016. Furthermore, the broad mix of monetary and fiscal policy continues to exert pressure on the gap between the official and market exchange rates, on inflation, and on net international reserves.

"What we see in Argentina now is a set of policies that we don't feel are sustainable. We've seen growth in fiscal spending around 35% year on year. The fiscal deficit has deteriorated in the first eight months this year to around 4.25% of GDP, that's more than double what it was in the same period last year. So, there's a lot of impetus being given to the economy from fiscal and monetary policy, which is helping growth this year. But, next year we anticipate that will have to be unwound. It won't be able to continue at such a pace," said Nigel Chalk, Deputy Director of the IMF's Western Hemisphere Department.

STORY: PERU / IMF WESTERN HEMISPHERE
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: SPANISH / ENGLISH / NATS

DATELINE: 07 OCTOBER 2015, LIMA, PERU

SHOTLIST:

1. Wide shot, Western Hemisphere Department briefing
2. Close up, photographer
3. SOUNDBITE (Spanish) Alejandro Werner, Director of the IMF's Western Hemisphere Department:
"El promedio regional que estamos anticipando en terminus de crecimiento para este año es menos 0.3% un crecimiento negativo de -0.3% para la region."
4. Med shot, reporters during news conference
5. SOUNDBITE (Spanish) Alejandro Werner, Director of the IMF's Western Hemisphere Department:
"Los dos estamos anticipando que el año entrante hay una recuperacion y un crecimiento positivo en la region. Creemos que muchos economias en la region estan dando señales de una aceleracion tenua pero lo vemos de manera clara. Lo vemos aqui en el Peru. "
6. Wide shot, IMF officials
7. SOUNDBITE (English) Krishna Srinivasan, Deputy Director of the IMF's Western Hemisphere Department:
"Now, the revival of confidence itself depends on the pursuit of a credible fiscal adjustment program and the frequent revision we've seen to fiscal targets does not inspire that confidence. So, to get back on track what you need is political will and cohesion in pursuit of such an adjustment program. And, when that happens, uncertainty dissipates, confidence comes back and hopefully the economy will rebound."
8. Close reporter asking question
9. Wide IMF officials – SOUNDBITE starts on wide shot
10. SOUNDBITE (English) Nigel Chalk, Deputy Director of the IMF's Western Hemisphere Department
"What we see in Argentina now is a set of policies that we don't feel are sustainable. We've seen growth in fiscal spending around 35% year on year. The fiscal deficit has deteriorated in the first eight months this year to around 4.25% of GDP, that's more than double what it was in the same period last year. So, there's a lot of impetus being given to the economy from fiscal and monetary policy, which is helping growth this year. But, next year we anticipate that will have to be unwound. It won't be able to continue at such a pace."
11. Wide shot, reporters
12. Wide shot, IMF officials at dais

DURATON: 01:50



 
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